Auro Food Ltd. vs Commissioner of Income Tax and Another

P. Sathasivam, J.

The writ appeal is filed against the order of the learned single judge dated 9-9-1997, made in W.P. No. 15177 of 1988 (see Auro Food Ltd. Vs.

Commissioner of Income Tax and another, ), in and by which the learned judge confirmed the order dated 7-11-1988, of the CITfirst respondent

herein.

For convenience, we shall refer to the parties as arrayed before the learned single judge.

The petitioner-M/s. Auro Food Ltd., Pondicherry filed a petition u/s 220(2A) of Income Tax Act, 1961 (hereinafter referred to as ""the Act""), on

3-9-1988, for waiver of interest before the CIT, Madras. It is the case of the petitioner that it had a claim for deduction u/s 80J of the Act for a

larger quantum than that was finally decided. Till the issue was settled by the Supreme Court in its decision in Lohia Machines Ltd. and Another

Vs. Union of India (UOI) and Others, , the petitioner pointed out that it had in its favour the decision of the Madras High Court. In the waiver

petition, it is also stated that the demand was not outstanding since the issue was in its favour and as soon as a revision of the assessment was

made consequent to the Supreme Court''s decision, the company had paid its claim and hence, there is no scope for levy of interest u/s 220(2) of

the Act.

The first respondent, namely, the CIT, who is vested with power to grant waiver of interest, after considering the scope of sub-section(2A) of

section 220 of the Act and the grievance expressed by the petitioner, after holding that the reasons pointed out by the petitioner are not enough for

the invocation of section 220(2A) of the Act, dismissed the said petition. Questioning the said order, the petitioner filed W.P. No. 15177 of 1988,

praying to quash the said order dated 7-11-1988, and also praying for further direction to the CITfirst respondent, to waive interest of Rs.

4,29,670 levied u/s 220(2) of the Act for the assessment year 1980-81. The learned judge, by the impugned order dated 9-9-1997, after

considering the relevant provision, the claim of the petitioner and the stand taken by the department arrived at a conclusion that the authority has

exercised its discretion properly, rejected the claim for waiver of interest, and dismissed the writ petition ; hence the present writ appeal.

Heard Mr. P.P.S. Janarthana Raja, for M/s. Subbaraya Iyer, learned counsel for the appellant, and Ms. Pushya Sitaraman, learned senior standing

counsel for income tax/respondents.

Learned counsel appearing for the appellant after taking us through sub-section(2A) of section 220 of the Act and circumstances highlighted by the

petitioner for the waiver of interest and the order of the CIT would submit that inasmuch as the authorityCIT has not applied his mind and furnished

adequate reason before dismissing the petition filed by the petitioner company, the said order cannot be sustained. In other words, according to

learned counsel, the authority is exercising quasi-judicial function, he has to apply his mind with reference to the grievance expressed by the

petitioner, and ought to have passed a speaking order. On the other hand, learned senior standing counsel for the department contended that the

claim of the assessee/petitioner was duly considered with reference to the statutory provisions and rightly rejected by the Commissioner, which

was upheld by the learned judge, and there is no merit in the present appeal; hence, prayed for dismissal of the same.

We have carefully considered the rival submissions made by both counsel, order of the CIT and the learned single judge.

Before considering the reasons stated in the petition filed u/s 220(2A) of the Act, it is useful to refer to the relevant provision.

When tax payable and when assessee deemed in default.

(2A) Nothwithstanding anything contained in sub-section(2), the Chief Commissioner or Commissioner may reduce or waive the amount of interest

paid or payable by an assessee under the said subsection if he is satisfied that

(i) payment of such amount has caused or would cause genuine hardship to the assessee;

(ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances

beyond the control of the assessee; and

(iii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

In order to avail of the benefits of the above provision, the assessee has to establish that the payment of interest has caused or would cause (a)

genuine hardship (b) default was due to circumstances beyond the control of the assessee and (c) the assessee has co-operated in an enquiry or in

any proceeding.

Now, we shall consider whether the petitioner has made out a case for applicability of the above-mentioned provision. In the petition it is stated

that the assessee had co-operated at all stages with the Department. Regarding payment, it is stated that the company is now in a financial crisis

due to its modernisation and expansion, the non-availability of wheat from the, Government with the result wheat has to be purchased in the open

market at very high rates, the borrowings made in earlier years and investments made in the new units which have not yet started yielding results.

The CIT in his order dated 7-11-1988, referred to the proved history of the case, the grievance/difficulties expressed by the assessee and the

conditions to be satisfied for applicability of the statutory provision. After referring to those details, he has passed the following order.

I am afraid that the reasons pointed out above had been constituted enough and sufficient reasons for the invocation of section 220(2A). The

assessee had benefited from the decision of the court in the matter of postponement of its payment. In the circumstances, I see no reason to

entertain this petition and hence it is dismissed.

As rightly pointed out by learned counsel for the appellant, though necessary details, such as conditions to be satisfied, the grievances expressed by

the assessee, etc., have been stated, the authority; who is exercising his quasi-judicial function has not considered each grievance and answered

separately by giving adequate reason for rejecting the petition for waiver of interest. In this regard learned counsel for the appellant very much

relied on the decision of the Apex Court in the case of KISHAN LAL Vs. UNION OF INDIA AND ANOTHER., . There also, in order to

avoid levy of interest, an application under sub-section (2A) of section 220 of the Act was filed before the CBDT. The Board has rejected the said

application by giving the following reason.

Please refer to your petition dated nil and further petition dated 24-11-1986, on the subject mentioned above. The Board has examined the

matter. After considering the application filed by you and the report of the CIT in the matter, the Board is of the view that the conditions as laid

down in section 220(2A) are not satisfied in your case and hence regrets its inability to interfere in the matter.

The said order was challenged by way of writ petition before the High Court of Delhi. It was contended before the High Court that while rejecting

the application, the CBDT had given no reasons. The said contention was rejected by the Delhi High Court and ultimately dismissed the said writ

petition. When the matter was taken by the assessee by way of appeal to the Supreme Court, disagreeing with the order of the Board as well as

the Delhi High Court, after holding that the order was not supported by reasons, the Hon''ble Supreme Court in KISHAN LAL Vs. UNION OF

INDIA AND ANOTHER., , set aside the same. The following conclusion is relevant (page 87) :

When an application is filed under sub-section (2A) of section 220 the authority concerned is called upon to take a quasi-judicial decision. If it is

satisfied that the reasons contained in the application would bring the case under clauses (i), (ii) and (iii) of section 220(2A) then it has the power

either to reduce or waive the amount of interest. Even though in the said sub-section it is not stated that any reasons are to be recorded in the order

deciding such an application, it appears to us that it is implicit in the said provision that whenever such an application is filed the same should be

decided by a speaking order. Principles of natural justice in this regard would be clearly applicable. It will be seen that a decision which is taken by

the authority u/s 220(2A) can be subjected to judicial review, as was sought to be done in the present case by filing a petition under article 226 ;

this being so and where the decision of the application may have repercussions with regard to the amount of interest which an assessee is required

to pay it would be imperative that some reasons are given by the authority while disposing of the application. Mr. Salve, learned senior counsel for

the appellant, has strongly relied upon the observations of this court in The Siemens Engineering and Manufacturing Co. of India Ltd. Vs. The

Union of India (UOI) and Another, , where at page 986 it has been stated that where an authority makes an order in exercise of its quasi-judicial

function it must record its reasons in support of the order it makes. In other words, every quasi-judicial order must be supported by reasons. In

our opinion, the observations in that case would apply in the present case also.

We have already referred to the rejection order passed by the CBDT, which is similar to the order passed by the CIT, in our case. It is clear from

the decision of the Supreme Court that even though there is no specific mandate in the sub-section that reasons are to be recorded while deciding

such an application, it is clear from the order of the Supreme Court that whenever such an application is filed seeking waiver of interest, the same

should be decided by the authority by a speaking order. Inasmuch as the first respondent is exercising quasi-judicial function, we hold that it is

incumbent on its part to record its reasons in support of the order it makes. Though learned senior standing counsel for the revenue has pointed out

that the last paragraph (para. 3) of the order communicates the application of mind of the authority wherein it is stated that there is no sufficient

reason for the invocation of sub-section (2A) of section 220 of the Act, in the light of the pronouncement of the Supreme Court on the very same

provision, we are of the view that the order of the Commissioner cannot be said to be a speaking order recording his reasons for dismissing the

petition filed by the assessee. We hold that the order of the Commissioner dated 7-11-1988, is not supported by reasons and the observation and

conclusion made by the Supreme Court in the case of KISHAN LAL Vs. UNION OF INDIA AND ANOTHER., would squarely apply to the

case on hand. This material aspect has not been considered by the learned judge who has committed an error in dismissing the writ petition.

In the light of what is stated above, we hereby set aside the order of the learned judge dated 9-9-1997, made in W.P. No. 15177 of 1988 [see

Auro Food Ltd. Vs. Commissioner of Income Tax and another, ] and the proceedings of the CIT in C. No. 2031 (64) of 1988-89/TN.V dated

7-11-1988. We direct the CIT to restore the application of the petitioner dated 3-9-1988, filed u/s 220(2A) of the Act to his file and dispose of

the same afresh in accordance with law within a period of three months from the date of receipt of a copy of this order. The writ appeal is allowed.

There would be no order as to costs.